The Lowdown on the Dow Jones

Ken doesn't know what the points mean on the Dow Jones Industrial Average, but Dave does.

QUESTION: Ken asks what the points mean on the Dow Jones Industrial Average. What do they represent? This is a great question for Dave.

ANSWER: The Dow is 30 stocks; an index that represents 30 companies. Companies like Coca-Cola, Wal-Mart, Nike and some others. How those companies go up or down, percentage-wise as a group, is what the Dow Jones Industrial Average is, percentage-wise. Statistically, it’s not even a great measure of what the stock market’s doing because it’s only 30 of all the companies offered. But it’s what everybody has always used, so it’s kind of stuck. It’s never a good measure since it’s only 30 companies. The S&P is actually better because it represents 500 companies.

If the average goes up 200 points and the market is 10,000 at the time, that’s a 2% change. If the market is 2,000 points as it was many years ago, that’s a 10% change, which is huge.

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